Answered by Sidi Salman Younas
Question: Almost 20 years ago my father purchased shares for investment purposes.Overs the years the value of shares has increased considerably and the company is paying good dividends on them.3 years back he sold some of them to make up for the money he required for purchasing land which he again did for investment purposes . Does my father have to pay zakat on the market value of the shares he holds or only on the dividend he receives? Has he to pay zakat on land also?Right now he has no intention of selling the shares but, on my advise, intends to sell the entire land for the purpose of purchasing land at another place.
Answer: assalamu `alaykum
It is oblgiatory to pay Zakat on shares. However, there is some detail to this based on whether the share was purchased for (a) capital gain or (b) to receive a dividend.
If the share was purchased for the purpose of capital gain, meaning one bought it with the primary intention of selling it, then Zakat will be due on the market value of the share at the time one is paying Zakat.
Example: An individual purchased a share for $10 with the primary intention of selling it in the future. This is now considered a trade good and therefore Zakat will be due on it. On the day Zakat is due, the value of the share is $20. Zakat will now be due on $20, not $10.
If the share was purchased in order to recieve a dividend, then one pays Zakat on one’s share in accordance with the percentage of Zakatable-assets within the company.
Example: An individual purchased a share for $100 with the intention of recieving a dividend. The company he has invested in has ten percent gold assets, twenty percent cash, and twenty percent manufactured goods. The remaining fifty percent are non-Zakatable assets, such as cars, furniture, land, and so forth. Here, the individual only has to pay Zakat on fifty percent of the share, which here would be $50.
Zakat on Land & Property
As for land and property, then Zakat is only due on it if it falls under the category of being a “trade good”. As indicated above, the condition for something to be considered a trade good is that it be bought with the primary and firm intention of reselling it in the future. However, if he does not have this intention, or is not firm on it (meaning he merely considers it one of many options he has), or bought it for personal use but later changed his mind, Zakat will not be due on the land.
One thing to take note of is that Zakat is due on the current market value of the land, not the price the land was bought for.
[Ibn `Abidin, Radd al-Muhtar; Taqi Usmani, Contemporary Fatawa, ‘How to Calculate Zakah on a Business?’]
Wassalam
Salman
Checked & Approved by Faraz Rabbani